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Oxera Associate, Alfredo Macchiati, publishes new book examining the Italian economy

Perche l'Italia cresce poco

The Italian economy isn’t really growing. Perché l’Italia cresce poco (Why Italy is growing poorly), the new book by Dr Alfredo Macchiati, Professor of Economic Policy, LUISS-Guido Carli University, Rome, and Oxera Associate, explores the reasons behind this and the implications of the new reform process set in train three years ago. Looking over the past 20 years, he shows how, even in the context of slow growth in Europe, the Italian economy has been performing poorly—in GDP terms, losing about 26 percentage points compared with the EU15. This is the opposite of what happened between 1950 and 1995, when Italy’s national income grew by 30% more than that of other European countries.

There is more cause for concern if, as American economist Simon Kuznets has stated, the value of economic growth lies not only in the improvement of standards of living, but also in the opportunities that present themselves, in tolerance of diversity, in social mobility, in civil engagement—aspects of everyday life that can feel under threat.
The causes of the prolonged crisis of the Italian economy can be found—as is argued in Perché l’Italia cresce poco—in several aspects of the Italian institutional system, many of which predate the Second Republic.[1] First, there is the weakness and, at the same time, the omnipresence, of the State. And the political system that emerged after 1992 has not solved the economic problems it inherited—in some cases, it has aggravated them—nor has it proven capable of facing new ones.
This institutional weakness is a historical feature, repeatedly evoked in interpretations of the history of the Italian economy, but with unclear implications. The fact that there ‘have always been’ weak and omnipresent public institutions has meant that, for a long time, the economic effects of this have been underestimated; there has been no cultivation of awareness that the economy cannot grow steadily if is not accompanied by a ‘capable’ State; and it has been forgotten that exceptional growth in the first two decades of the post-war period were achieved in a unique context (reconstruction, opening trade with foreign countries, large supply of cheap labour). Once that context began to change, the inadequacy of Italy’s institutional structure started to be felt more markedly, and initially caused an inflation crisis and very high public deficit, leading to the political and institutional earthquake of 1992–93. Nor did the next attempt at institutional change have the desired effect. Indeed, two new negative characteristics have been added: the strengthening power of interest groups; and an ‘excess of government changes’, which has produced a sharp instability in—announced, but not always realised—economic policy choices.
The radical change of scenery in the 1990s—in technology, in world trade, in the balance of international politics, in the European monetary regime—left Italy with a totally inadequate institutional and economic structure. Italy’s ability to react and remain competitive has affected some parts of the economy, such as manufacturing, but has been too limited to drive the country’s growth: the miracle experienced in the transition from an agricultural to an industrial society was not repeated in the face of great transformation at the end of the last millennium.
In the last three years, a new reform process has been launched that seems to want to go to the root of some of the institutional weaknesses. It is an operation that promises to be radical in its analysis, although not without contradictions and gaps in the early stages. It will require cohesion, consistency of action, and a favourable international context—conditions that have sometimes been missing for all governments since 1994.
This book develops these arguments by examining more closely the actual operations of these institutions, rendering less elusive the link with the results achieved in the last two decades and the possible outcomes of ongoing reforms.

[1] The ‘Second Republic’ (1992–present) refers to the political system that emerged in Italy in 1992, after the ‘Mani pulite’ investigations into political corruption (the ‘Tangentopoli’ scandal) led to the demise of the ‘First Republic’ (1948–92).

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